Insurance fund for road accident victims facing deficit

Chennai, Dec 11 (IANS) The system of paying third-party liability claims in road accidents out of a common premium pool is likely to continue in the future while the corpus is running into a deficit, said the Indian insurance regulator Saturday.

In a motor insurance contract, the insurer and the policy holder are the first and second parties and the general public is the third party.

‘Currently, the pool’s loss ratio is around 127 percent. But as per actuarial valuation the loss ratio is likely to be 185 percent and the pool does not have that much fund,’ J. Hari Narayan, chairman of the Insurance Regulatory and Development Authority (IRDA), said.

He was responding to a question raised at a conference organised by ‘Industrial Economist’ business magazine here.

Motor third-party pool is a fund formed with the third party liability premium collected by non-life insurers from commercial vehicle owners.

The claims for death or injuries to third parties due to road accidents involving insured vehicles is paid out of the pool fund and the losses/surpluses shared by all the non-life insurers in the ratio of their top line.

The pool system was formed in April 2007 as private non-life insurers declined to cover commercial vehicles and the burden of loss-making portfolio fell on the four government owned companies – National Insurance, New India Assurance, Oriental Insurance and United India Insurance.

Speaking at the conference, New India Assurance’s deputy general manager C.J. Philip said: ‘The pool size is around Rs.3,190 crore while the loss is Rs.3,791 crore for the year 2009-10.’

He said motor insurance accounts for nearly 45 percent of the industry’s premium income and claims ratio is 98 percent (damage to vehicles 46 percent, third party 193 percent).

According to him, commercial vehicles are only 29 percent of the total vehicles insured, but account for 75 percent of the third party liability claims.

He said the adverse loss ratio under the third party is due to inadequate premium, courts giving liberal awards to the claimants and escalation in costs due to delays.

As the private companies have to share the portion of the losses, they are clamouring for scrapping of motor pool.

‘The pool is only two years old but it takes around nine years for a third party claim to be reported. The pool is meant to pay claims. While the average compensation awarded by the courts is around Rs.100,000 in the recent times, it has gone up by Rs.75,000. As per actuarial calculations the loss ratio is around 185 percent and not 127 percent,’ IRDA chairman Narayan said.

Speaking to reporters on the sidelines, Narayan ruled out scrapping of the pool till the burden on the government companies was reduced.

Referring to transporters’ opposition to hikes in premium rates, he said it was a political decision.

‘The insurers have to come to us with the suggested revision. I think they will come to us soon as they have been holding discussions,’ Narayan said.